Congress should direct that the Medicare fee-for-service (FFS) benefit have an out-of-pocket (OOP) maximum, according to Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission (MedPAC) in testimony before the House Ways and Means Committee on February 26, 2013. Because the current FFS benefit does not have a limit on the amount of beneficiaries’ cost sharing, he said, a small percentage of Medicare beneficiaries incur very high levels of cost sharing each year. This change would be one part of a benefit design that also would include an additional charge on supplemental insurance as well as replacing coinsurance with copayments that may vary by type of service and provider.

Adding an OOP maximum to the FFS benefit would reduce the financial risk for beneficiaries with very high spending and could mitigate the need to purchase supplemental insurance, a significant expense for many beneficiaries, Hackbarth said. In recommending an additional charge on supplemental insurance, MedPAC maintains that it is reasonable to ask beneficiaries to pay more when their decision to get supplemental coverage imposes additional costs on the program that are not fully reflected in their supplemental premiums. Those costs are currently paid for by all Medicare beneficiaries through higher Part B premiums and by the taxpayer, Hackbarth said.

Incentives

A redesign of benefits, according to MedPAC, should create clearer incentives for beneficiaries to make better decisions about their use of care, while holding aggregate beneficiary cost-sharing liability the same as under current law. This is a contrast to recently proposed changes to Medicare benefits that would require beneficiaries to pay more. Medicare should allow for ongoing adjustments and refinements in cost sharing as evidence of the value of services accumulates and evolves, MedPAC proposes.

Over the long term, the Medicare program needs to move toward a benefit design that gives individuals incentives to use higher value care and discourage using lower value care, according to MedPAC. To encourage this, Congress should consider giving the Secretary authority to reduce or increase cost sharing on services if evidence indicates that doing so would reduce Medicare spending or lead to better health outcomes without increasing costs. This authority would be exercised through the usual notice and comment rulemaking process, Hackbarth said.

Supplemental Plans

Almost 90 percent of FFS beneficiaries have supplemental coverage that fills in some or all of Medicare’s cost sharing, effectively nullifying the program’s tool for influencing beneficiary incentives, Hackbarth said. To address the insurance effect of supplemental coverage, MedPAC recommends imposing an additional charge on supplemental policies. This approach would allow beneficiaries to add costs to Medicare but require them to pay for at least some of those additional costs.

The additional charge recommended by MedPAC would apply to most sources of supplemental coverage, including Medigap and employer-sponsored retiree plans. The additional charge would not apply to Medicare Advantage plans because they are at risk for benefit designs that increase costs relative to their capitation payments and are able to employ other tools for managing their enrollees’ use of services.

The Commission considers it important that risk-averse beneficiaries who wish to buy first-dollar coverage or reduce the uncertainty in their OOP spending through supplemental insurance should be allowed to do so but effectively at a higher price.